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Keywords

plaintiffdefendantappealmalpracticetrustlegal malpractice

Related Cases

Peterson v. Winston & Strawn LLP, 729 F.3d 750, 58 Bankr.Ct.Dec. 115

Facts

The Lancelot or Colossus group of mutual funds, managed by Gregory Bell, collapsed in late 2008 after it was revealed that they had invested in ventures run by Thomas Petters, who was operating a Ponzi scheme. The funds had hired the law firm Winston & Strawn in 2005 to revise their offering circular, which falsely assured investors that the funds would verify the existence of inventory and ensure repayments were made to a lockbox. The trustee alleged that the law firm committed malpractice by failing to alert the funds' directors about Petters's refusal to allow verification of inventory and by not revealing the truth in the offering circular.

The Funds hired Winston & Strawn in 2005 to revise their offering circular (the “Confidential Information Memorandum”) shown to persons thinking about investing in the Funds. According to the Trustee's complaint, Bell told the law firm that Petters refused to allow the Funds to verify the existence of inventory and that repayments did not come through lockboxes.

Issue

Did the law firm commit legal malpractice by failing to alert the funds' directors of questionable actions by the corporate manager and by not disclosing the truth in the offering circular?

Rule

The in pari delicto doctrine applies to preclude malpractice claims when the plaintiff's knowledge of the wrongdoing is at least equal to that of the defendant. Additionally, a law firm is not liable for malpractice if it did not violate any duty to its client.

The in pari delicto doctrine applies to preclude malpractice claims when the plaintiff's knowledge of the wrongdoing is at least equal to that of the defendant.

Analysis

The court applied the in pari delicto doctrine, concluding that the trustee could not assert claims against the law firm because Bell's knowledge of Petters's actions was at least as great as that of the law firm. The court found that the trustee did not plausibly allege that the law firm violated any duty, as the law firm was not hired to report Bell's actions and there was no Illinois law requiring such disclosure. Furthermore, the court noted that alerting the directors would not have changed the outcome, as they had delegated all powers to Bell.

Conclusion

The Court of Appeals affirmed the district court's dismissal of the malpractice claims against the law firm, concluding that the trustee had no greater rights than the funds themselves had and that the law firm did not breach any duty.

The Court of Appeals affirmed the district court's dismissal of the malpractice claims against the law firm, concluding that the trustee had no greater rights than the funds themselves had.

Who won?

Winston & Strawn prevailed in the case because the court found that the in pari delicto doctrine applied, and the trustee failed to demonstrate that the law firm committed malpractice.

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